Category: C.R.E.A.M.

As I mentioned, I was at this investment meeting last week. They gave us a bunch of papers, and being a giant nerd, I actually read the stuff. (Hey, I do want to retire, and sooner rather than later)

There were a few things I read that I think are interesting for the long term.

According to the Employee Benefit Research Institute and the US Bureau of the Census, we’re gonna have a lot of old people soon. Yeah, big surprise. Well, let’s put some numbers to it. Here’s the number of people over 65.

1990 – 31.2 million

2000 – 35.0 million

2010 – 40.2 million

2020 – 54.6 million

2030 – 71.5 million

We’re going to nearly double the number of old people in the next 20 years. Buy stock in Ensure. No, really. Buy stock in companies that make stuff for old people. That’s one of the big reasons people are freaking out about health-care. We’re going to need lots more doctors & medical technology, and the price is going up. Apparently, health-care costs are currently increasing 3x faster than the Consumer Price Index.

Oh also, old people? Thanks for taking care of Social Security. And by “taking care”, I mean “can we get some health-care to replace Social Security’s kneecaps after that cool thing you did with the crowbar?” You people just can’t handle credit, can you?

In the early 90s, Sweden had a financial crisis. In the 80s, they had a credit boom which produced high consumer spending and real estate prices. They had a currency crisis, in the 90s, and the boom was reversed. Sounds a bit like now. I think this is what the US is looking to as a model for our current crisis, because Sweden was able to solve their problem in only a few years. They nationalized 22% of banking assets, and then created some private companies to help come up with values for, and sell off the bad assets. I hope it works in our case.

Last night I went to this investment meeting, where a bunch of people in suits told me about the economy, and why they’re doing a good job. I took a few notes and wanted to share.

Oh, and in reference to the title, the first speaker, in one of his first slides, put up two graphics. One was an up arrow that essentially said “good”, and a down arrow that essentially said “bad”. Are you kidding? What’s your fee percentage, again?

Anyways…

Apparently, the Fed has backed 75% of the banking system. I think they’re really trying to bolster faith for the short term that the problems we’re having will be satisfactorially resolved.

A thought of my own: I know that the government can’t just print money to pad things out. If they do, inflation, or hyper-inflation is the consequence. But, even though market values have dropped wildly, the real tangible values are still there. Companies still have huge amounts of assets, both physical and knowledge. The underlying value of lots of these things are still there, they’re just wildly underpriced. As long as the government doesn’t issue more money than the real underlying value, then we won’t see insane-o inflation. I don’t know if this is true, but something sounds right about it.

They made the point that recovery comes way before the worst of the downturn. For example, the recession of 1973-1974 was already recovering by 1974, but unemployment (one of the big indicators that people look to) didn’t peak until 1975, at 12%.

Because of the tech bubble, as well as the current credit crisis, we are in the worst decade of the past 140 years. Some people are calling it a “lost decade”

An idea of mine, based off something they mentioned: just because the money economy is dropping doesn’t mean invention and scientific progress is stopping. Innovation continues & current progress keeps moving forward. Once the current bullshit stops, there’s going to be a big surge.

2008 inflation: .2% — that’s 2-tenths of a percent. Ridiculously low.

They look at investments with a worst-case mentality. They assume $25/barrel oil for oil companies; worst case unemployment for economically sensitive companies; failure of R&D for biotech companies. Right now they’re looking for cheap stocks that will benefit from high government spending.

Merck is one of the companies they look at. Even though some of their drugs are going off-patent soon, there’s still enough for them to be healthy. Existing drug lines will be able to supply 2/3 of their current market capitalization, even as far out as 2012, year-end. I like this, since it means they can have huge R&D failures, but still be very likely to be a safe bet for the longish term.

Martin Atkin made the point that they don’t do as well when the market does something weird, but that when things go back to normal, they position themselves so that they end up doing better than normal. I think this is interesting because there’s always reports/bitching of investment companies missing very successful black swans. I don’t think that is a real problem. Normally, things are normal. So, most of your strategy should be planning for normalcy. When something crazy happens, it is by definition, unusual. So, since you can’t predict it, you do a bit of planning for worst cases, and handle problems as they arise.